Auditor Expectations for an Audit & How Entities Can Prepare
September 08, 2025
By Dan Evans & Laura Haffner
Preparing for an annual external audit is often daunting and time-consuming. Whether your entity is large with years of experience with external auditors or preparing for its first external audit, the preparation challenges can be similar. This article will explore auditor responsibilities and what entities can do in anticipation of an audit.
Auditors are required to be independent of the entity they audit, as well as possess knowledge, skills and abilities to perform their duties. Auditors are also expected to act with reasonable care and diligence and exercise professional judgment.
When conducting an audit of financial statements, auditors must obtain reasonable assurance about whether financial statements are free of material misstatement due to error or fraud. Note that the entity’s management is responsible for financial statement preparation while the auditor is responsible for expressing an opinion on the statements.
In addition, an auditor must prepare audit documentation that provides written evidence supporting the auditor’s conclusions. In preparation for an audit, here are tips to help entities improve the efficiency and accuracy of the process.
Analyze Significant Transactions and Agreements Throughout the Year
In addition to typical revenue and expenses, entities may enter into agreements – such as long-term debt and leases, throughout the year. The accounting and finance department should receive the documentation (agreements and relevant supporting emails, etc.) when it is executed, rather than at the end of the year in preparation for the audit. The accounting department can review the documents to help ensure proper accounting is implemented at the front end. For example, it will need to consider any covenants or any other special accounting treatment that may apply.
If this review is performed throughout the year, there is significantly less year-end audit prep work related to these transactions and agreements. In addition, the accounting department has access to all supporting documents that the auditors may request, and any questions or missing documents will be researched while the contract is still current.
Consider Performing Monthly Analytics During the Year
In preparing for an annual financial audit, analytics play a pivotal role in ensuring accuracy, transparency and efficiency across every stage of the process. By leveraging data analytics, entities can proactively identify anomalies, assess trends and validate account balances long before auditors arrive. This not only streamlines documentation but also strengthens internal controls and highlights areas of potential risk. The use of predictive and diagnostic tools empowers finance teams to drill into variances, trace transaction histories and support key judgments with evidence-based insights. Ultimately, analytics transform audit preparation from a reactive scramble into a strategic exercise in data-driven clarity.
Maintain Rollforwards of Balance Sheet Accounts
The auditor’s request list will ask for balance sheet rollforwards, such as schedules that show beginning balance, detailed activity during the year and ending balance. Often, entities will create the rollforward at the end of the year in preparation for the audit. However, if an entity updates the rollforwards each month and reconciles with general ledger detail and supporting documentation, then the year-end rollforward will be nearly complete for audit prep. This can save time during the year-end crunch and help catch and correct any issues in a timely manner.
Typical rollforwards include fixed assets – particularly if there is a construction project, many additions or disposals during the year, leases and long-term debt.
Keep A Repository of What Was Provided to the Auditors in the Past
During an audit, an entity will provide a host of documents to the external auditor for their review. It’s common for audit support to be requested over many months, beginning before the year-end until audit issuance. It can be helpful for an entity to maintain a repository such as an electronic folder, of the documents provided to the auditor. Consider indexing or naming the files to match the auditor’s request list. Referencing this file during the following year’s preparation may help save time and confusion of what to provide the auditors. Sometimes the auditor’s request list will refer to a file by an unfamiliar name, but this method will allow the accounting team to reference what was provided last year and prepare a file with consistent formatting and relevant information.
Review Cutoff When Preparing for the Audit
A thorough audit preparation will include a review of expenses and the period in which they are recorded. One method to achieve this is to review a report of payments after year-end and identify any invoices for services or goods received prior to year-end. Those invoices identified should be accrued in accounts payable at year-end or recorded in another liabilities account. This review will likely require reviewing physical invoices to determine the proper period. Common accruals to watch for are payroll – including payroll taxes and benefits, professional services, utilities and unreimbursed employee travel expenses.
A similar exercise should be performed for prepaid expenses. To do this, review a detail of expenses during the year and identify any that relate to services or goods received after year-end. A separate schedule of prepaid expenses should be maintained and will likely be an audit request. Common prepaids are rent, insurance and some utilities.
Agree on an Audit Timeline
It’s not uncommon to feel unsure of the next steps during any part of the audit process. It’s particularly ambiguous during the period after auditors performed on-site work but have not finalized the audit report. It is critical to agree on a timeline with the auditors, starting from planning all the way through audit issuance. The timeline should – at a minimum, lay out the following steps:
1. Planning fieldwork.
2. Audit fieldwork.
3. Audit report draft.
4. Audit issuance target date.
At each of these milestones, confirm with the auditor that they are still on track with the timeline or if any modifications are needed. In addition, it may help to have periodic check-in meetings with the auditor to set aside time to answer questions and ensure everyone is in agreement.
Conclusion
Audit preparation for an entity can be intimidating and arduous, especially if it’s your first. Thoughtful planning and project management can help alleviate many of the annual challenges and make the process easier for the entity and the auditor.